Gas on the rise

It’s economics 101 that Australia must lift its supply of gas. The case for growth is now even more compelling. By Tim James.

Got the gas heater on at this time of year?  Many Australians do. About 70% of Australian households use gas for heating, cooking, hot water and other uses. 

We’re not alone. Demand for gas in other parts of the world is incredibly high right now.  Reuters recently reported that demand elsewhere is “robust globally for power generation needs in summer” and therefore LNG prices are at an eight year high.  Whether it’s winter or summer, gas is in demand.  

Don’t forget that liquified LNG is now Australia’s second largest export product worth over $50bn per year.  And recently it has been reported that these export figures have reached new highs, partly on the back of demand from China. 

The hard lesson of long domestic gas policy limitations in Australia is being learned as supply cannot meet demand.

Some assert the answer is government intervention into the market to reserve supply for local use. While seemingly appealing in the short-term, this represents false and unsustainable economics, and is no meaningful solution in a modern, open, global economy. The only true answer is lifting supply. 

In the first half of last year, the pandemic pushed gas demand and prices down considerably. Some commentators, particularly those with anti-gas agendas (too often activists posing as commentators), claimed that these conditions could spell the end of gas. These are the same “commentators”, as Watercooler has previously outlined, who frequently declare Australia must rapidly phase-out of gas for environmental reasons. They speak of gas projects becoming “stranded assets”.

Quite the opposite is happening.

Indeed, the International Energy Agency reports that strengthening supply and improving infrastructure is “even more important in global clean energy transitions” as the “share of variable renewable energy sources grows”.

This was among the core propositions of last year’s MRC research report on gas – that gas is an essential partner as Australia shifts its energy mix away from coal and towards renewable energy. 

The same IEA report further notes that price drops last year and rises since reflect “typical demand and supply factors”. 

It’s basic economics which equally applies to the Australian market. Demand is strong and supply simply isn’t adequate to meet it. This too was a core proposition in the MRC report – growing supply is a national priority.  We have abundant reserves and more recently the regulatory regime and practices to ensure safe, economic extraction. It’s time to get on with growing supply.

Recent reports also confirm that limited gas supply globally brings about greater coal burning and that the supply deficit isn’t expected to disappear any time soon. 

So those on the left of politics in Australia, who continue to demonise gas and protest against any gas projects, are ironically acting against what they claim to stand for. The irony and their hypocrisy is all too much. 

Australia can have a “gas-fired recovery” as the government speaks of, indeed it is what markets, both domestic and international, want. The government and private sector are working to advance this vital imperative in spite of immense opposition in parliament, media and other quarters. 

The recent Interim Report of the National Gas Infrastructure Plan points to progress and makes clear the commitment going forward. It will be finalised late this year at which point acceleration and action must come together to boost production, storage capacity and the prospect of an East Coast LNG import terminal.  

Labor have come late to the party on the need for greater gas supply, largely in response to recent union demands. It is flawed and hollow for Labor leader Anthony Albanese to demand a gas reservation policy. Indeed he and his colleagues have a lot to answer for in delays to gas projects over the last two decades. At least Hunter MP Joel Fitzgibbon has come to realise and state that the only solution is to “get more gas out of the ground and to expand pipeline capacity”. 

Apparently Warringah MP Zali Steggall knows better. She describes herself as “optimistic about the decline of gas” and staunchly opposes any gas projects including a recent drilling program in the Northern Territory which she says is a “path of self-destruction”. Gas – there is “no future in it” – Steggall concludes.

Similarly, the Greens are demanding a treaty against gas, no gas projects to proceed and a rapid phasing out of gas. 

There are no surprises in this political propaganda dressed up as policy. 

ACCC Chair Rod Sims is under no illusions about the way forward, commenting this month:

“Clearly more supply is what is needed in the market. We need more gas exploration and production. We need more pipeline capacity as well. If we don’t get that, we’ll end up importing it.”

Only one side of politics in Australia is committed to growing gas and has a plan that reflects the economic essentials. The case for lifting supply, as thoroughly made out last year by the MRC, is even more important and timely today. Some continue to play politics with Australia’s energy, economic and environmental needs, while the government gets on with the job.